Howard Marks: Check risk, keep it niche

“Most great investments begin in discomfort,” says Howard Marks of Oaktree Capital Management, in his latest letter to investors.

“The things most people feel good about – investments where the underlying premise is widely accepted, the recent performance has been positive and the outlook is rosy – are unlikely to be available at bargain prices.”

Marks, who co-founded New York-listed Oaktree (US: OAK) 19 years ago, is well known for making these kinds of discomforting investments. One of his preferred strategies is distressed investing – buying “the debt of companies seemingly at death’s door”.

This has paid off well: Oaktree’s distressed debt funds – which account for around 25% of the $80bn in assets – have returned more than 20% per year on average since inception.

Still, this is a style of investing that’s littered with pitfalls. For every great opportunity, there will be many traps.

Marks puts Oaktree’s consistent success down to several key principles that include scrupulous risk management, rigorous in-depth analysis and building highly specialised expertise in niche areas.

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
Heading higher?

Or are house prices set to fall?

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

'Would you rather upset God, or have Him just ignore you?'

In the first of three interviews with Merryn Somerset Webb, Hugh Hendry, manager of the Eclectica Fund, talks about what it takes to be a good hedge fund manager – and how he learned to stop worrying and love central banks.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


24 November 1972: the 'DB Cooper' hijacking

Today in 1972, a man calling himself Dan Cooper parachuted from a hijacked Northwest Airlines Boeing 727 with $200,000 in cash. He has never been found.